Dividend Reinvestment Plan Advantages

Inexpensive to start. Often you can enroll in a dividend reinvestment plan by owning one share of stock. Some companies even offer dividend reinvestment plans that allow you to buy the initial share directly from them, bypassing a broker.

Reasonable fees. Companies reinvest your dividends in additional shares and allow additional cash purchases of stock with little or no fees.

Invest automatically. Some dividend reinvestment plans offer additional investments in amounts as small as $10-$25! Many offer monthly investment plans where they will withdraw the amount you specify from your checking/savings account.

Good investment practices. Often the best investment strategy is to “buy and hold” and “dollar-cost average.” (Dollar-cost averaging is the practice of investing a set amount on a periodic basis regardless of share price to even out the highs and lows. When prices are high you buy less, when prices are low you buy more.) Reinvesting your dividends through a dividend reinvestment plan is an excellent way to dollar-cost average, and over time can result in a substantial position in a company.

Dividend Reinvestment Plan Disadvantages

Watch out for fees on small investments. A recent trend in dividend reinvestment plans is for companies to pass along more and more fees to investors. Although these fees are often very low, they can easily eat up a substantial portion of your investment if you are investing small sums of money. As an example, I own 10 shares of a stock that pays $3.20 in dividends every quarter. The fee to reinvest that $3.20 was almost $1! Obviously not a good deal, so I withdrew from the dividend reinvestment plan.

Dividends are still taxed. Dividends are treated as income by the IRS whether you receive a check or they are reinvested. At the beginning this is often not a big deal, but over time as the number of shares you own builds the dividend amount can become quite substantial.

Paperwork. If you want to invest in 10 companies through dividend reinvestment plans you have join 10 different plans. You can simplify things a bit by using Computershare (see below) or Sharebuilder. Online brokerages usually offer free dividend reinvestment plans for those who invest larger sums.

Lack of diversification. Owning shares in a single company can be risky. Mutual funds might be a better choice for the risk-averse, as they spread out the risk over hundreds of companies.

Finding a Dividend Reinvestment Plan

Computershare offers one-stop shopping for hundreds of dividend reinvestment plans. They offer a searchable list that can be filtered to easily find a dividend reinvestment plan that fits your needs.

You can also use OneShare.

Probably the best way to find out if a company offers a dividend reinvestment plan is to visit the company website. Most companies have an Investor Relations area that will highlight the various options available to shareowners. For example: Coca-Cola, Disney, and Wal-Mart.

Final Thoughts

A dividend reinvestment plan offers investors an excellent, low-cost way to invest in a company on a regular basis over time. dividend reinvestment plans are especially advantageous for investors who can only invest a small amount each month. Investing in a single company carries risks, but it can also be quite rewarding.

Do you currently invest in a company through a dividend reinvestment plan? If so, which companies?

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In the overview, Jill mentioned that ETFs usually have lower expense ratios and are ideal for a one-time small investment that you will hold for a long time. They’re also good for trading a large group of assets at once. However, you have to account for the trading commissions both when you buy and adding money in the future.

That’s great… but just how do we actually figure out which one will have the lower cost in any given situation?

ETF and Index Fund Calculator

Luckily, Vanguard makes it really easy for us to compare the costs of an ETF or an index fund with their ETF calculator.

For example, I mentioned that I was moving a chunk of an old 401k to Vanguard this week. It’s $50,000 and I’d like to put some of it into the Vanguard Emerging Markets Index (VEIEX). Let’s compare it to the Vanguard Emerging Markets ETF (VWO).

The index has a 0.39% expense ratio and 0.25% purchase and redemption fees. The ETF has a 0.27% expense ratio and I would normally pay $7 per trade using Scottrade.

ETF and Index Fund Comparison

Compare a $50,000 investment over 20 years adding $5,000 per year, in the example outlined above, and the ETF is lower cost option, saving $5747. Here’s what the calculation looks like:

More ETF Factors

When you use the calculator, you’ll have to account for the following variables:

Free Trades. In the example, I used Scottrade. However, there are lower cost broker options like TradeKing and Zecco. Depending on which broker you are using, your results will vary.

Rebalancing Your Portfolio. One of the things that the calculator doesn’t take into account is the need to rebalance your portfolio. You’re going to have to determine how often you do this and the effect it will have on the expenses in your portfolio if you are using ETFs.

Admiral Shares. Once you have $100,000 in a Vanguard fund, you get admiral shares with lower expenses. You’ll have to compare the admiral shares to the ETF too, to make sure you’re still getting the lowest cost.

In the example with the emerging markets index, even if you compare the admiral share class (VEMAX), which has a lower expense ratio of 0.27%, the ETF still is the lower cost option, in large part to the purchase and redemption fees.

However, when you look at the total stock market, like when I started a young family member in a Vanguard ETF for her Roth IRA, the ETF is lower cost for the same example above, but the Total Stock Market Index Fund Admiral Shares (VTSAX) is the lower cost option using the admiral shares. This is mainly due to the difference in expense ratios. The total stock market index fund (VTSMX) has an expense ratio of 0.18% compared to the ETF (VTI) at 0.09% and the admiral share class at 0.09%.

Action Plan

Right now, I’m still using index funds for the majority of our portfolio. However, after doing some research with the emerging markets ETF, I’m considering using the ETF for a portion of our portfolio going forward.

Do you use index funds, ETFs, or a combination of both in your portfolio?

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What is an ETF?

An ETF is simply a fund made up of multiple securities, somewhat like a mutual fund. ETFs differ from mutual funds in that they are continuously traded on the stock market (and thus revalued) throughout the day, making it easy to buy or sell at any time.

ETFs can be made up of securities that track a stock index (like the S&P 500) or instead choose to focus on a specific industry and/or country. ETFs are generally not actively managed – unlike a mutual fund the underlying stock investments remain the same from time to time. The price of an ETF is usually very close to the value of the underlying assets, but does not have to be.

ETFs also generate income from dividends and charge a management fee just like a mutual or index fund.

Why choose ETFs?

ETFs are good for you if you have a one-time small investment, as they do not have a minimum investment. Be aware, though, that ETFs charge flat trading commissions that can be costly, so they will eat up a larger percentage of your initial investment the smaller that investment is. Long term, ETFs have lower expense ratios than mutual funds that can make up for the up-front cost. Since ETFs can be sold through a broker throughout the day, they allow investors to use techniques previously reserved for individual stocks such as buying on margin and short-selling.

ETFs are an ideal vehicle for trading a large group of assets at once. However, because of trading commissions, ETFs should be used by those planning to hold the same group of underlying assets for a long period of time. If you rebalance your portfolio often, or plan to purchase small amounts of shares regularly (such as through dollar-cost averaging), index or traditional mutual funds may be a better option for you than ETFs. Bottom line, ETFs are good options for those making a one-time new investment or for those looking to simplify and consolidate several small existing investments.

Getting started with ETF investing

Individual investors can buy and sell ETFs on stock exchanges through any broker, much like individual stocks. If you want to invest some of your retirement funds in ETFs, check with your current 401(k) plan administrator or IRA broker.

If you simply want to begin investing in an ETF outside of a retirement account, check with any major broker such as Fidelity, Vanguard, or Sharebuilder. Make sure to compare several funds to review past performance, dividend payments, and expense ratios. Look for Money Magazine’s recommended ETFs on their Money70 list – there are one or two ETFs in every category.

Further Reading

For more details about ETFs, and how they are created and valued, check out Yahoo!Finance, the Investment Company Institute Factbook, or About.com.

Check back tomorrow for ETFs versus index funds!

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I opened a Solo 401k at Fidelity last year. However, I held off on making our contribution until just this month, so that we would be able to more accurately pinpoint our income.

This is one of the best characteristics of the solo 401k. As long as you establish your plan in the prior calendar year, you don’t need to make your contributions until your tax filing date, including extensions.

Fidelity Rejected My Contributions

Unfortunately, Fidelity sucks. I just sent in our contributions, and they were rejected. Apparently they closed my account, because my name didn’t match their records. I got married six years ago, but I have a different account there that was opened before that.

So let me get this straight, their computer system can’t handle opening a new account for someone who got married and uses their married name? Give me a break. I must be the only person to have ever gotten married and change their name, right?

Fidelity Service Impacts Our Tax Bill

And this is much worse than when Scottrade tried to make me pay fees to change my name! Because they closed my account last year (and did not notify me), I can no longer make my solo 401k contribution for last year.

Since my extension was filed with an assumed solo 401k contribution, I’d be on the hook for additional taxes, including penalties and interest. I spoke with a supervisor about the situation, and he apologized. However, that apology doesn’t pay the tax bill! Thanks Fidelity, you suck!

After spending hours brainstorming, I came up with a back up plan to divert my contribution to my husband since Public Employees can Double-dip on Retirement. Thank goodness we live in a community property state too, otherwise I wouldn’t be able to just switch it like that without other repercussions! Although I’m not happy about it, at least we avoided a large tax bill full of penalties and interest.

Fidelity Loses Our Business

I had planned to move a significant amount of money to Fidelity, using my solo 401k to execute a Roth IRA Conversion Strategy to Avoid Taxes. Looks like they’ll miss out on my business.

Instead, as soon as they cash the check for my husband’s contribution, I’ll be moving my account to a Vanguard solo 401k (which wasn’t available when I opened my solo 401k).

I’m sure it won’t matter to them that I’m moving my account. However, I’m a firm believer in taking your business elsewhere to demonstrate unacceptable service. They made a mistake they couldn’t fix. I assured them I’d tell everyone I knew, which is all of you!

Taxes are complicated, so it’s very important to have a service provider you can trust. Unfortunately, Fidelity wasn’t reliable enough. Vanguard, my paperwork will be in the mail shortly!

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Trades are normally $4.50, so if you use all the trades, it’s like $90 in free money when you use the Zecco promo code. But you have to act quickly, the deal expires this weekend.

How to Get Your Free Trades

1. Open a new Zecco account by September 13, 2009.
2. Use the following Zecco promo code: bonus1.
3. Get 20 free stock trades applied to your account by September 16th, 2009.
4. Use the free trades within 90 days after they are granted.

Zecco Promo Code Terms and Conditions

• New Zecco Trading accounts must be opened and approved by Sunday, September 13th, 2009.
• Offer not eligible to existing Zecco Trading customers.
• You must use the Zecco promo code to get the free trades.
• Limit one bonus per household.

More on Zecco Trades

Great for Tax Planning. The free trades last 90 days, so they will be perfect to use for some end of year tax planning in early December!

Additional Free Trades. The 20 free trades are in addition to the 10 free stock trades Zecco gives customers each month for meeting balance requirements.

For more information on Zecco, see my Zecco Review.

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How to Get Your Sign up Bonus

1. Have a current TradeKing member refer you*.
2. Use the link in the email you receive to open a new TradeKing account by August 31, 2009.
3. Fund your account with $1,000 within 30 days of opening.
4. Execute a trade within 180 days of account opening.
5. Keep the $1,000 in the account (minus any trading losses) for a minimum of 180 days.
6. Get your $50 bonus.

How to Get Your Referral Bonus

1. Log in to your TradeKing account.
2. Send the refer a friend email*.
3. Get your $50 bonus.

TradeKing

Please see the eligibility rules for the refer a friend program for complete details.

For more information on TradeKing, see my complete TradeKing Review.

Work Together

*I’m going to be on vacation for part of this month, so I won’t be able to track and send referrals. Therefore, I encourage you to work together with other readers to to refer each other.

If you need a referral, please use the comments to connect with other readers to send you a referral. If you have a TradeKing account, please let readers know if you are willing to refer them. It should be a win-win for both of you!

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Scottrade Account Details

• Account Minimum: None
• Opening Account Minimum: $500
• Account Fees: None
• Trading Fees: $7 per trade (market or limit), which includes stock and ETF trades. Options have an additional $1.25 per contract. Mutual funds are free or $17 per trade depending on the fund.

Scottrade Details

Local Office. This comes in handy for an investment club, since we switch officers yearly. We still make all our trades online though.

Multiple Checks. Scottrade accepts deposits from multiple club members, something that many other brokers don’t allow. It becomes a hassle when you need to deposit checks at the bank and transfer the money monthly.

Integration with Software. We use Bivio for our club software, which is compatible with Scottrade to download our transactions. It makes the treasurer’s job much more manageable.

Cheap Trades. $7 trades work out well; it’s not the cheapest, but it is still inexpensive. We researched some of the low-cost brokers, but they didn’t offer all the services above, which are important for an investment club.

Individual and IRA Accounts. I also use Scottrade for some of my personal accounts and my family members, and my only complaint was when I ran into their silly fees to change my name.

Investment Clubs

I’ve been a member of our investment club since 2002. Here is more information about running an investment club:

• How to Start an Investment Club
• Investment Club Bylaws

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Risk Tolerance Calculators

New Jersey’s Cooperative Extension Services (operated out of Rutgers University) offer a great online quiz that will calculate your level of investment risk tolerance. If you don’t like that one, you can take a look at Yahoo’s free calculator. Still not happy? Merrill Lynch has their own. And there are others. Many others.

And all of the calculators attempt to do the same thing, they want to tell you how much risk you’re comfortable taking in your financial planning. Obviously, that’s a tough nut to crack. We don’t really have a standard unit of measurement for risk, after all. So, what you end up with is a numerical score that corresponds with a few sentences describing the way the calculator believes you feel about risk and money.

Is that valuable information? For some people, it might be. There are undoubtedly a few folks out there who aren’t big fans of introspection who’ve never considered whether they’re devil-may-care or risk aversive. Those horoscope-like explanations of what the results mean might give people a slightly better sense of what their feelings really mean in some senses.

In those ways, you could consider the risk assessment tools valuable. They also have some potential value if you find that your attitudes about risk are in direct conflict with your optimal personal finance objectives (more on that later).

When Fear Shouldn’t Be a Factor

Even though there is some value in calculating your risk tolerance, you shouldn’t fool yourself into believing this information is truly mighty. Don’t make the common mistake of assuming that your comfort level should dictate your resource management.

That’s right, the argument that you should only invest at a risk level compatible with your own comfort level is wrong, wrong, wrong. If you’re tolerance for risk is out of whack (in either direction), you don’t necessarily need to change your investment pattern. You need to adjust your attitude instead.

That argument assumes an optimized investment plan, of course. The argument is quite simple. You should be following the best possible system to reach your financial objectives. If you are using that system and your personal sense of risk tolerance runs contrary to it, you need to change your attitude, not your plan.

Not everyone agrees with that. Statements like, “Your risk tolerance should determine a suitable asset allocation that is right for you” are common. There’s a belief out there that you shouldn’t invest if the move makes you uncomfortable. That’s a backwards perspective, though.

Smart Investing

You should be focused on developing a plan of action that will meet your needs and objectives. If you can do that while staying in your psychological “comfort zone”, that’s great. If, however, it moves you into uncomfortable territory, you need to change the dimensions of that “comfort zone”.

Otherwise, you’re setting yourself up for a long-term failure. If you need to undertake a certain level of risk to reach your goals, anything short of that is going result in you falling short of those goals. If the plan is sound and the strategy is workable, you should be at least somewhat comfortable in knowing you’re doing the right thing. If you don’t feel that way, it’s time to either (a) persuade yourself to start or (b) prepare to be nervous for a while.

InvestorGuide.com lays out the argument:

We need to remember that it is not only our personal risk tolerance that we want to consider, but we also want to ask ourselves, “What is the appropriate risk to take?”

Asking how you feel about something is wonderful. Letting the answer dictate your personal finance strategy, however, isn’t. Instead, you should be making decisions based on your own financial interests.

If you don’t have a good plan and you’re living on a personal finance roller coaster, it’s fine to take stock of your comfort level and to act accordingly. If you’re following the kind of smart plan you need to get ahead, however, your comfort level needs to take a backseat.

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I enjoyed reading readers’ responses about their portfolios at Lending Club and wanted to share them. It’s fun to see how everyone stacks up.

What I find particularly interesting is that many readers are taking the time to look at what the borrower wants to do with the money, rather than just looking at the interest rates.

Readers’ Lending Club Returns

• 14.46%. All current. One loan is an A, but the others are D or E. I let Lending Club pick the loans for me. – Dough Roller
• 12.15%. 11 loans, all current, one grade D paid off early. Portfolio is A (36%), B (8%), C (28%), D (20%), and E (8%). I’m still relatively early into the terms so the fact that they are all current isn’t a huge surprise, but I expect one of the 12 notes I took out will eventually default. Selection based on how much they were asking to borrow and for what purpose. – Jeremy
• 11.47%. 20 loans, all current, 3 months in. Generally, if I invest in a D, E, or F I read the reason they need the money, and usually only go in on small sums less than $5,000. I keep a pretty balanced portfolio across all the percentages with enough A’s to balance out my higher risk investments. I’m trying to get my portfolio to a point where I’m getting paid at least $25 per month so I can reinvest in other loans. – Jenny
• 11%. 2 loans, both current. I’ve only dabbled in social lending. To spread my risk out a bit, I balanced investments in Lending Club borrowers between a medium-risk borrower with a low-risk borrower. – Frugal Dad
• 10.57%. All current. Mostly A loans that I selected myself, but a couple low quality “gambles” too. – Rocket
• 10.18%. 4 loans, all current, 1 borrower is paying extra every month. I know that means I don’t get to earn interest off him or her, but I’m happy to see their progress in paying it off early. Makes me think I invested in a really good person who has their stuff together. This is why peer to peer lending is better than banks. I really, really care about investing in good people who have their acts together. Not just people who can do math. (i.e. I don’t want to finance your Sea-doo because you’re overfinanced on your truck). – Jessica Ward
• 9.64%. 2 loans, B grade, both current. I picked the loans myself and asked a question of one of the borrowers. – No Debt Plan
• 9.4%. All current. My notes are pretty old (nearly halfway through the 3 year repayment process). – Debt Kid
• 8.83%. 4 notes, all current. I just barely started. Grade A loans. I look at the reason for borrowing. I like to help people who are getting loans for business needs. – Miranda
• 8.75%. A few loans, all current, loans are about a year old. This is a small sample size though, because residents of my state are not currently able to fund new loans via Lending Club. – Patrick
• 7.34%. Over 200 loans. Investing for 1.5 years. I had a few defaults (about 10 of my loans). But gosh! What a great return after defaults and fees. I’m now investing again after they reopened and I’m never going back to Prosper. The quality of borrowers is better, and there is no drama with Lending Club (no quiet periods, no out-of-control defaults, and only good credit borrowers, etc). – LooneyMooney
• 0.74%. The return is low because I have been hit by 3 defaults from D loans that I made at the very beginning. I guess I am paying for my desire to get the highest interest rates possible. I’ve now learned my lesson. Currently, I am cautiously optimistic about peer to peer lending and continue to invest on new notes when I have a chance. – Pinyo

More information on Lending Club can be found in the Lending Club Step-By-Step Guide and my Lending Club Review.

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My Lending Club Account

My loans are all current, which is much better than the loan I had at Prosper, which was charged-off last week because the person filed bankruptcy.

Although, in all fairness, that loan was at 15.5% because the it was a credit grade D. I was pretty greedy when I first started out in peer to peer lending.

I learned my lesson, and at Lending Club I’ve carefully selected loans with a grade A. The interest rate is lower (7.68% – 9.63%) but there’s a much greater probability that they will pay! And so far they all have!

Open a Lending Club Account

If you’re interested in opening a Lending Club account, here is a Lending Club Step-By-Step Guide to get you started. Minimum investments, interest rates, and requirements are detailed in my Lending Club Review.

Net Annualized Return on Investment

Lending Club uses the net annualized return method to show the performance only on the money you have received payments on to date, accounting for the service charge and defaulted loans. It doesn’t compare neatly to stock market returns, but it does give you a good indicator of the return you are getting on your money.

Here’s the formula for the math junkies out there:

Your Lending Club Account

How is your Lending Club account doing? Log in and check your net annualized return on investment (which should show on the first page when you log in). I’d love to hear how readers are doing!

• What is your net annualized return on investment?
• Are all your loans current?
• What investment grade loans did you select?
• Did you select the loans yourself or use the portfolio builder?

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I finally got around to checking them out last week after I heard about their April Fools’ Day joke. Apparently, when customers logged in last Wednesday, they were greeted with million dollar account balances. I love April Fools, so I had to check out any company that was willing to participate in such fun!

My Zecco Review

Zecco offers trades at $4.50 per trade, which is pretty cheap. It just barely edges out TradeKing at $4.95 per trade, and easily beats Scottrade (which is the broker I am trying to replace). You can also earn 10 free trades per month with a $25,000 account balance or if you make 25 total trades per month.

Account Details

• Account Minimum: None
• Opening Account Minimum: None
• Account Fees: None
• Trading Fees: $4.50 per trade, which includes stock and ETF trades. Options have an additional 50 cents per contract. Mutual funds are $10 per trade.

Zecco Details

Stock Screener. The stock screener was my favorite tool at Zecco. It was very helpful, since I could select multiple criteria that our investment club uses for evaluation. I will definitely be sharing that at our next club meeting, since we haven’t been able to locate a free tool that does something similar, so easily. Zecco also has about a dozen preset screens, if you don’t know what you are looking for.

Ticker. Normally, tickers at the bottom of the screen drive me crazy. However, I liked the Zecco ticker, because I could quickly put in my list of stocks to watch and see it scroll while I was working on some research.

Premium Tools. I was a little disappointed to see that you have to pay extra for Gainskeeper ($24.99 for six months). Although, you can try it out for free for two months. They also offer a Quotestream package with premium data analysis tools for $20 per month.

Free Trade Calculation. To get the free trades, you’ll need to reach the $25,000 minimum balance each month. As soon as your end-of-day balance hits it, your account will get the 10 free trades the next day to use in the remainder of the month. If your account goes below $25,000 your free trades will stay in your account.

Sign up for Paperless. They charge $2 per paper statement and $1.50 per paper trade confirmation, so be sure to sign up for the online statements, which are free.

IRA Accounts. They offer retirement accounts, but charge a $30 annual maintenance fee.

Forex Trading. If you are into forex trading, or want to learn more, they offer a $50,000 practice account so you can learn.

My Thoughts

The Zecco sign up was fast and easy. While it didn’t offer immediate approval, I got an email within the hour saying my account was ready to go. Once your account is set up, you can sign up for the free ACH service to fund your account.

The education section isn’t as robust as TradeKing, but then again, I wouldn’t necessarily look to my discount broker for learning how to invest in stocks.

They do offer cheap trades. If you are looking for a cheap broker, but don’t care about lots of extras, Zecco could be the way to go. I’m going to stick with them for awhile and see how they do beyond the initial account opening.

Even though they won’t meet my needs of finding a cheap broker to deposit old stock certificates (they charge $75 for stock certificate deposits), they are in the running for my new regular broker.

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For all the details on minimum investments, interest rates, and requirements, see my full Lending Club Review.

Become a Member

The enrollment process is easy, just sign up for an account at Lending Club. First you’ll enter your sign-in information. Lending Club will then send you an email to verify your email address. You can then enter your personal information. The process was easy and quick!

Account Summary

Your account summary is essentially the dashboard where you can monitor everything going on in your account. You’ll be able to see at a glance how much cash you have available to invest, the status of your loans, and a breakdown of the loans. (Click on any of the pictures to make them larger.)

Investing in Loans

Once you’ve signed up, there are two ways to shop for loans. You can browse for individual notes or use a targeted portfolio.

To shop for individual notes, narrow down your criteria with the search options on the right. I selected the interest rates (A&B), credit scores, debt-to-income ratios, and delinquencies that I wanted to look for loans that will have a better success rate (although lower interest rate).

When you see a loan that interests you, click on it to read details about the borrowers employment, what they plan to use the money for, and more details. You can also ask the borrower questions about their intended loan.

Place Order

Once you’ve selected your notes, you’ll see the order summary screen to place your order. Buy the note, and you’ll see it move to the “in funding” status in your account summary.

Portfolio Lending

The other option to search for loans is to use Lending Match, to select a bunch of notes at once. Use the slider to select your interest rate and click run.

Your order screen will populate with a mix of loans that together will meet your intended interest rate. However, you do not need to purchase all the loans on the order screen; you can review each loan just as you did before and choose whether or not to include that loan.

Reinvest

Once you’ve selected loans, you’ll receive interest each month from your borrowers. To avoid having to go in and purchase more loans from time to time, you can use the reinvest option to purchase loans for you. Select the amount, interest rate, and time frame and the rest will be done for you!

Portfolio Contents

After you’ve invested in notes, you can use the portfolio contents to see the portfolio summary, similar to the account summary, and a list of loans that you are invested in. It’s a good way to see which loans are current and the details for each.

Lending Club

I’m having fun with Lending Club, and I’ll continue to monitor how my portfolio does. Eventually, I might try a loan with a higher interest rate, but for now, I’m going to stick to the borrowers with less risk.

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My TradeKing Review

I’ve written about TradeKing before, because they offered a great sign up bonus in the past. I didn’t get a chance to open an account then, but I figured now was a great time, since 2009 is all about execution for me!

Account Details

• Account Minimum: None
• Opening Account Minimum: None
• Account Fees: None
• Trading Fees: $4.95 per trade (market or limit), which includes stock and ETF trades. Options have an additional 65 cents per contract. Mutual funds are $14.95 per trade.

TradeKing Details

Their niche. TradeKing focuses on dirt cheap trades. At $4.95 per trade for market and limit orders, the price is tough to beat.

Research and Tools. The tools section is great. I started playing around with the various calculators and was impressed. Although to be honest, I haven’t ventured into the world of options in a long time, and I would have to dig out my old finance books from college to remember all the different terms! However, they do have an education center that could probably refresh my memory.

Dividend Reinvestment. For stocks that offer DRIP programs, you can enroll and dividends can purchase fractional shares.

Fund Availability. TradeKing offers stocks, ETF, bond, and mutual fund trading. I glanced at the list of mutual fund families and saw the majority of the big names listed.

Referral program. If you have friends that like to trade, you can refer them to get $50. Your friends must open the account with $1,000 and make a trade to get the referral bonus.

My Thoughts

TradeKing offers tons of information at your fingertips. They have great stock research tools, which could be very helpful for my investment club.

The application process took 5 minutes. Lots of questions about investing experience, but straightforward.

Funding the account wasn’t as efficient. If you opt for ACH transfer, the first transfer “takes at least 10 business days before you can begin trading.” After that there is a 5 day hold on ACH transfers. Other options are to mail a check, or do a wire transfer, but pay the fees.

Withdrawals must be done by either wire (for a fee), or you can request a check. It didn’t list ACH as a withdrawal option, but I contacted the live chat and verified you can use ACH for withdrawals too. Whew! However, you must wait 10 days from the deposit.

Although I’m on a search to deposit old stock certificates, TradeKing won’t be the broker for that. The stock certificate deposit processing fee is $100 per certificate. Yikes!

Overall, the interface looks really easy to use, and for the price, I think it could be a good replacement for my current broker. If only they had a more efficient way to fund the account when you open it. It sounds like it will be a week or two before I’m ready to place a trade.

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My ShareBuilder Review

I had an old account at ShareBuilder that I haven’t used in 6 years, so I had to open a new one. Although, they wanted me to remember my user name and password from back then… and the name of a pet I didn’t have.

After a quick phone call, I was able to recover the password and the representative even offered me a “welcome back” option to upgrade to the top pricing program for free.

Of course, once again, my new account is opened in my maiden name, despite my attempts to open it with my married name!

Account Details

• Account Minimum: None
• Opening Account Minimum: None
• Account Fees: None
• Deposits: Use electronic funds transfer and the money will be deposited at the start of the next business day. You can also use the “express funding” option to execute a trade without money in your account for a $5 fee for non-retirement accounts.

Trading Fees

Trading Fees: $9.95 per online trade, or you can use the automatic investment program. Automatic trades are placed on Tuesdays. You can select weekly, monthly, or biweekly automatic trade frequencies for the following fees:

• Basic: $4 per investment; no monthly fee
• Standard: $12 per month; includes 6 investments; $2 for each additional
• Advantage: $20 per month; includes 20 investments; $1 for each additional

When I filled out the application and selected the pricing program, it did indicate the standard program would be free for the first month; something to watch for if you sign up for an account.

ShareBuilder Details

Their niche. ShareBuilder focuses on dollar cost averaging using the automatic investment plan. You can also buy fractional shares. This would be helpful for my sister-in-law who initially didn’t deposit enough money into her Roth IRA to buy her first share of VTI. With ShareBuilder, she could have at least gotten a fraction of a share.

Dividend Reinvestment. Because of the ability to purchase fractional shares, you can opt for reinvestment of dividends and capital gains.

Fund Availability. Mutual funds are limited to ING funds, but you can buy ETFs and stocks (7,000 available).

Gainskeeper Tracking. I’m excited about the gains and losses tool. One of the big downfalls to having a combination of stock certificates and DRIP programs is the complete lack of tracking the cost basis. It would be nice to consolidate it in one tool, and have the dividend reinvestment portions tracked automatically.

My Thoughts

The application process took only minutes. My information was prefilled from the existing account, so it may take a little longer for a brand new account. I’ll sign my husband up and see how long it takes to open a brand new account.

In addition, you can link your ShareBuilder account to your ING account so you can view and transfer money between the accounts. I linked my accounts and it took less than 30 seconds. I can now see my ShareBuilder account from my ING account page, which is nice.

The ShareBuilder account isn’t going to be the cheapest solution (at $9.95) if you like to place market orders. It’s also not the best solution for active traders.

However, it’s the perfect type of account for my younger family members just getting started, like my sister-in-law. The availability to purchase ETFs, like VTI, once a month for $4 will be perfect…. it might even be a good option to start some custodial accounts for my kids.

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A reader, Kevin, is interested in starting his own investment club. He emailed me looking for a little more direction and a sample charter. Here is a copy of our current bylaws. I removed the dates and other information that you would need to specifically enter for your own club. Feel free to copy our bylaws, or tweak them for your own club.

Investment Club Bylaws

I. FORMATION

THIS AGREEMENT OF PARTNERSHIP, effective (insert date) replaces any previous partnership agreements.

II. NAME

The undersigned hereby form a General Partnership, to be known as The Investment Club of (city), (state) in accordance with the laws of the State of (insert state name), herein after referred to as “The Club”.

III. TERM

The partnership began on (insert date). It continues each calendar year unless earlier termination as hereinafter provided.

IV. PURPOSE

The only purpose of The Club is to invest the assets of The Club solely in stocks, bonds and other securities (collectively herein referred to as “securities”) for the education and benefit of the partners.

V. OFFICERS

Officers of The Club shall be President, Vice-President, Secretary, Treasurer and Assistant Treasurer elected from the Partnership

A. Election

Officers shall be elected at the annual meeting, take office and begin duties at the meeting following the election and serve for one year or until new officers are elected. Upon the occurrence of a vacancy, an interim election shall be held to fill the vacancy for the balance of The Club year. Officers may succeed themselves in the same office.

B. Duties

1. President
The President shall preside at meetings, appoint committees, oversee all club activities, and see that resolutions passed by the partnership are carried out. The President shall be one of the two partners empowered to sign for the partnership and shall act as the partnership’s agent for investment activities and shall place buy and sell orders authorized by the partners with The Club’s broker, Scottrade.

2. Vice-President
The Vice-President shall assume the duties of the President when the president is absent or unable to serve. The Vice-President is responsible for insuring that The Club’s study program is properly carried out, maintaining an educational program of the partnership and appointing partners to present investment reviews and serve on educational committees and maintain a file of their reports.

3. Secretary
The Secretary shall keep a record of The Club meetings and business, and report on previous meetings and keep attendance. The Secretary will issue a written notice to partners who have not met the attendance requirement. The Secretary will serve as a back-up Treasurer when needed.

4. Treasurer
The Treasurer shall disburse funds, maintain books covering The Club’s financial operations, assets, partners’ shares, and member’s deposits, prepare proper tax forms, and maintain an account in the name of The Club at Scottrade. Each year, at the annual meeting, a full and complete account of the condition of the partnership shall be made to the partners by the Treasurer. The Treasurer shall be one of the two partners empowered to sign for the partnership and shall act as the partnership’s agent for investment activities and shall place buy and sell orders authorized by the partners with The Club’s broker, Scottrade.

5. Assistant Treasurer
The Assistant Treasurer shall collect members deposits, record the deposits, deposit the money into the bank account in The Club’s name, give Treasurer the record of deposits and assist Treasurer in any other duties as assigned by Treasurer within 48 hours except for unforeseen circumstances.

VI. MEMBERSHIP

A. Additions
Additional partners may be admitted at any time, after attending two meetings, upon the unanimous consent of all the partners in writing or at a meeting of the partners so long as the number of partners does not exceed fifteen (15). Any new partner will be furnished a copy of this agreement, must sign the original and will be bound by all terms and provisions herein in the same manner as other partners.

B. No Compensation
No partner shall be compensated for services rendered to the partnership, except reimbursement for expenses.

C. Transfers to a trust
A partner may, after giving written notice to the other partners, transfer his interest in the partnership to a revocable living trust of which he is the grantor and sole trustee.

VII. PROCEDURE

A. Meetings
1. Regular meetings of The Club shall be held each month at a time and place determined by The Club.
2. Annual meetings will be held each January.
3. A special meeting may be called by the Officers upon 24-hour notice to each member of The Club.

B. Operations

1. Management
Each partner shall participate in the management and conduct of the affairs of The Club equally. Except as otherwise provided herein, all decisions shall be made by a majority of the partners.

2. Quorum and Partner Absence
To make any binding business decision related to the partnership, a quorum must be present at any meeting, which such a decision will be made. A quorum is defined and will be established when the represented partners is equal to or greater than 1/2 of the total partnership. An absent partner may vote in writing with the proper signature or by E-mail on any particular item. Any such vote document must be secured in advance and presented by an attending partner. In the case of an absent vote a quorum may be established for only the item to which the vote document pertains. Each item to be considered will be resolved by a majority either present or for which vote documents are available provided a quorum exists. In addition, a partner may provide another partner with a general proxy in writing or by E-mail with instructions on how to apply the absent partner’s vote. In this case the attending member must provide the proxy document to the recording partner for validation in order to exercise the proxy. The capital accounts for which valid proxies exist will be included in the quorum determination.

3. Voting
Buy and/or sell action may be taken after a discussion by the partners and when voted by simple majority of the partners present at a scheduled meeting. Purchases on margin and short sales are prohibited. Each partner shall have one vote, except as provided in Section C7: Dissolution of The Club.

4. Capital Contributions

a. Initial Fee
Upon joining the Club, each person must make a one-time deposit of $100.00 payable on the date of her signature on the roll. $25.00 will be in the form of a fee to cover expenses and $75.00 will be an initial deposit for investment.

b. Monthly
After joining, each partner shall make a deposit of $35.00 each month at the regular monthly meetings. Each partner shall remit her monthly deposit to the Treasurer at or before the time scheduled for each monthly meeting.

A partner who fails to make such deposit must pay said amount at or prior to the next regular monthly meeting. Such payment is in addition to the payment due at said meeting. Any partner who has not paid her monthly deposit for the current meeting shall not be entitled to vote, except on propositions or parts thereof involving sale of securities, liquidation or dissolutions.

Any partner who fails to comply with the monthly deposit requirement shall be considered to have withdrawn from the partnership, unless otherwise determined by a majority vote of the members present at a regular monthly meeting.

Any partner who has an unplanned absence and is unable to deliver their check at the meeting may mail their check to the Treasurer to be postmarked within seven days and avoid penalties for late payment of dues. This will not avoid penalties for missed meetings.

c. Additional contributions
The partners may make additional contributions to The Club each month. No partner’s capital account shall exceed 20% of the capital accounts of all the partners.

d. Annual Fee
There will be no (zero) annual membership payment. Operating expenses will be paid out of general club monies. All expenses incurred will be assessed proportionally. The initial contribution will remain a $25 fee.

5. Value of the Partnership
The current value of the assets and property of the club, less the current value of the debts and liabilities of The Club shall be determined as of the close of business on Friday before the meeting, hereinafter be referred to a “valuation date”.

6. Capital Accounts
There shall be maintained in the name of each partner, a capital account. Any increase or decrease in the value of The Club on any valuation date shall be credited or debited, respectively, to each partner’s capital account in proportion to the value of each partner’s capital account on said date. Any other method of valuating each partner’s capital account may be substituted for this method, provided the substituted method results in exactly the same valuation as previously provided herein. Each partner’s capital contribution to, or capital withdrawal from, the partnership, shall be credited, or debited, respectively, to the partner’s capital account.

7. Sharing Profits and Losses
Net profits and losses of the partnership shall inure to, and be borne by, the partners in proportion to the valuation adjusted credit balances in their capital accounts or in proportion to valuation unit balances.

8. Books of account
Books of account of the transactions of The Club shall be kept and at all times be available and open to inspection and examination by any partner.

9. Annual Accounting
Each calendar year, a full and complete account of the condition of the partnership shall be made to the partners. In addition a review committee consisting of three persons including the current Treasurer and two non-officer members shall verify the records for the current year.

10. Bank Account
The partnership may select a bank or brokerage account for the purpose of opening a partnership checking account. Funds deposited in said partnership checking account shall be withdrawn by checks signed by either of two partners designated by the partnership. That check signing authority is granted to the current Treasurer and President of the Club.

11. Broker Account
None of the partners of this partnership shall be a broker; however, the partnership will maintain a brokerage account at Scottrade and enter into such agreements with the broker as required, for the purchase or sale of stocks, bonds, and securities. Stock, bonds, and securities owned by the partnership shall be registered in the partnership name unless another name shall be designated by the partnership.

Any corporation or transfer agent called upon to transfer any stocks, bonds, or securities to or from the name of the partnership shall be entitled to rely on instructions or assignment signed or purporting to be signed by any partner without inquiry as to the authority of the persons signing or purporting to sign such instructions or assignments or as to the validity of any transfer to or from the name of the partnership.

At the time of transfer, the corporation or transfer agent is entitled to assume (1) that the partnership is still in existence and (2) that this agreement is in full force and effect and has not been amended unless the corporation has received written notice to the contrary.

C. Account closure and partial withdrawal

1. Notification
A partner may withdraw a part or all of their shares after their last deposit has been invested at least thirty days. A partial withdrawal is limited to 50% of the withdrawing partner’s capital account. The Partner shall send written notice of withdrawal to the President, which shall become effective on the date the next regularly scheduled statement is prepared. Written notice shall be deemed received as of the first meeting of the partnership at which it is presented. If written notice is received between meetings it will be treated as having been received at the next following meeting. In making payment, the value of the partnership as set forth in the valuation statement prepared for the meeting at which written notice is received from a partner requesting a partial or full withdraw, will be used to determine the value of the partner’s capital account, adjusted for any dividends received to the date the notice was received. A partner withdrawing all of his shares shall be considered to have withdrawn from the partnership.

2. Partnership purchase
The other partners shall thereupon have and are hereby given the right during said period to purchase for their capital accounts in the partnership in proportion to their capital accounts in the partnership, the capital account of the withdrawing partner, subject to the 20% limit set forth above.

If the other partners do not exercise their option to purchase, then the partnership shall pay the withdrawing partner the value of his interest in the partnership as shown by the valuation statement in accordance with the terms of payment of this partnership agreement.

3. Terms of Payment
In the case of a partial withdrawal, payment shall be made in cash or securities at the option of a majority of the remaining partners. In the case of a full withdrawal, payment may be made in cash or securities or a mix of each at the option of the remaining partners. Where securities are to be distributed, the remaining partners select the securities.

4. Purchase Price
Upon the death, incapacity, or withdrawal of a partner, and the exercise of the option to purchase by the other partners, said other partners shall pay the withdrawing partner or his estate, as the case may be, a purchase price. The partnership shall transfer to the partner (or other appropriate entity) withdrawing a portion or all of her interest in the partnership, an amount equal to ninety-seven per cent (97%) of her capital account less the actual cost of selling sufficient securities to obtain the cash to meet the withdrawal. The amount being withdrawn shall be paid within 90 days, but no sooner than 50 days, after the valuation date used in determining the withdrawal amount. Any outstanding fines will be deducted from the final payment.

If a partner withdrawing a portion or all of the value of his capital account in the partnership desires an immediate payment in cash, the partnership at its earliest convenience may pay eighty percent (80%) of the estimated value of his capital account and settle the balance in accordance with the valuation and payment procedures set forth above.

When securities are transferred, the partnership shall select securities to transfer equal to the value of the capital account or a portion of the capital account being withdrawn (i.e. without a reduction for broker commissions). Securities shall be transferred as of the date of the club’s valuation statement prepared to determine the value of the partner’s capital account in the partnership. The Club’s broker, Scottrade, shall be advised that ownership of the securities has been transferred to the partner as of the valuation date used for the withdrawal.

When cash is required to meet a withdrawal, if necessary, the Partners will determine the assets to be sold before the date of the preparation of the liquidating value statement used to determine the value of the withdrawal.

5. Removal of a partner
A. Any partner may be removed by agreement of an absolute majority of partners. Written notice of a meeting where removal of a partner is to be considered shall include a specific reference to this matter. The removal shall become effective upon payment of the value of the removed partner’s capital account, which shall be in accordance with the provisions on full withdrawal of a partner.
B. The delinquent dues on the part of any member, will automatically constitute her “notice of withdrawal” if any two consecutive periods are outstanding.
C. In the years following the year a partner joins the Club any partner who fails to attend a minimum of eight regular monthly meetings per calendar year shall be considered to have withdrawn from the partnership, unless otherwise determined by a majority vote of the members present at a regular monthly meeting.

6. Death or Incapacity of a Partner
In the event of the death or incapacity of a partner, receipt of notice of such an event shall be treated as notice of full withdrawal, and a withdrawal penalty shall not be assessed. Liquidation and payment of the partner’s account shall proceed in accordance with paragraphs on withdrawal of this partnership agreement.

7. Dissolution of The Club
The Club may be dissolved by agreement of a collection of Partners whose capital accounts total a simple majority of the total of all Member capital accounts. The President or other Officer shall provide written notice of the decision to dissolve to all Members of The Club. Upon dissolution, all Club liabilities shall be paid and the remaining assets shall be distributed among the Partners either in cash or in kind to the partners or their personal representative in proportion to their capital valuation accounts on the date of distribution. Distribution of assets to Partners shall be accomplished not later than ninety (90) days following the date of the agreement to dissolve The Club.

D. Amendments
Amendments to this agreement shall be made in the following manner:

a. Procedure. Any partner may submit a proposed amendment at a regularly scheduled meeting. The proposed amendment shall be in writing and distributed to all partners prior to the Discussion/Vote.
b. Discussion/Vote. The proposed amendment will be discussed and voted on at a meeting occurring not earlier than one month following publication. Approval of the proposed amendment shall require the affirmative vote of 2/3 of the partners present or by proxy, with the exception of this section (D. Amendments) which will require a unanimous vote.

E. Undertakings
This partnership and the partners do not, in any way, directly or indirectly, undertake to guarantee or promise to repay to any partner all or any portion of her contribution to the partnership. This provision is set forth herein in order to avoid application of (insert chapter), (insert state) Statutes.

F. Fines
4. A $3.00 fine will be levied for each meeting missed, after one free absence per calendar year.
5. A $1.00 fine will be levied for late arrival at a meeting.
6. A $5.00 fine will be levied for late payment of dues. Dues considered late if not paid by end of meeting.
7. Any outstanding fines will be deducted from the final payment of a resigned member.

VIII. FORBIDDEN ACTS

NO PARTNER SHALL:
A. Have the right or authority to bind or obligate The Club to any extent whatsoever with regard to any other matter outside the scope of The Club business.
B. Without the unanimous consent of all the other partners, assign, transfer, pledge, mortgage or sell all or part of their interest in The Club to any other partner or other whomsoever, or enter into any agreement as the result of which any persons not a partner shall have any interest in The Club.
C. Use The Club name, credit or property for other than Partnership purposes.
D. Do any act detrimental to the interest of The Club or which would make it impossible to carry on the business or affairs of The Club.
E. Purchase an investment for the partnership where less than the full purchase price is paid for same. (No buying on margin.)
F. Under any circumstances offer possible membership rights to any individual or group without the unanimous approval of the partnership.

This Agreement of Partnership is hereby declared and shall be binding upon the respective heirs, executors, administrators, and personal representatives of the Partners.

The partners have caused the Agreement of Partnership to be executed on the dates indicated below, effective as of the date indicated above.

Name
Signature
Date

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